I'm here to discuss risk taking. R-squared is for Ranting and Raving, R&R, as well as some more technical topics

Thursday, September 16, 2010

Moral Relativism and College Tuition

Apparently my sister's recent blog post caused a bit of a family panic. That's nothing new, as any of her readers would know. Our father, distressed by factual errors, reminded her that our parents did not give Brandeis a pile of cash so that Penelope would gain admission. They gave it so she could graduate. She thought his distinction irrelevant.

I disagree. Allowing sub-standard students entry in exchange for cash helps the sub-standard individual, but hurts the other students. Charging students to graduate benefits everyone.

Consider this: Compromising on admissions reduces the measurable qualities of the school: average SAT scores, numbers of valedictorians, high school GPAs, number of extracurricular activities. The list goes on. Compromising on graduation standards by charging students to receive degrees probably raises measurable qualities: per student spending, endowment per student, and, most importantly, graduation rates.

What's the difference between Brandeis saying "I'm sorry Ms. Trunk, you are short two courses to graduate, so we'll see you next semester, please see the bursar for your bill," and saying "Look, P, you had the college experience, you're short a couple of classes. You can burn six months of your life and $25,000 on another semester, or you can pay $30,000 right now, and call it even." I'd say not much.

There's even further benefits to the school. Colleges already nearly perfectly price discriminate. (When was the last time you turned over your income tax returns and statement of assets to allow the seller of a product to pick the price??) However, tuition remains an important headline number for marketing puposes: It should be high, but not too high to scare people away. Individualized "graduation fees" would allow a little back-end price discovery, presumably furthering the wealth redistribution goals of educational institutions.

Schools could finely tune their pricing to further their various agendas: Want more English Lit majors? Make the engineers pay huge fees upon graduation! Need higher paid alumni without giving up the value of your trust fund babies? Charge a fortune for that art history degree!

About Me

Since completing my PhD in economics at the University of Chicago, I have worked at financial firms ranging from the insanely large (JP Morgan) to the ridiculously small (my current venture has one employee!) with stops in between investing for McKinsey & Company, and Silver Creek Capital Management. I have served on company boards, both public and private.
You can reach me at marc@riskrsquared.com